The proposed study will evaluate the impact of two prospective reimbursement mechanisms in Maryland ("per case" and "per service" reimbursement) on changes in hospital costs, productivity, and patterns of care. Maryland is unique in introducing a "per case" hospital reimbursement method based on the diagnosis and related characteristics of admissions in seventeen of its forty-six hospitals. This has been implemented in a subset of hospitals to permit adequate evaluation of its effects. The remaining hospitals are reimbursed on a "per service" basis with prospectively set rates. The evaluation inolves three major components: (1) an assessment of changes in hospital costs (both aggregate and diagnostic specific) through an examination of changes in hospital productivity and input efficiency; (2) an examination changes in total episode costs, including pre-hospital, inpatient, and post discharge services using Medicaid and Medicare files; and (3) the extent to which hospitals are successful in reducing costs below charges, thus producing net revenues. The results are expected to indicate the characteristics of hospitals that are associated with greater (or lesser) success under each mode of reimbursement. Furthermore, the extent to which "per case" reimbursement leads to the substitution of ambulatory care and extended care services for inpatient care will be assessed to determine if reductions in hospital costs actually lead to reductions in total episode costs.